Rob Enderle, 21st February 2012

Both companies have deployed indigenous tablets as dedicated gateways to their respective online ecosystems, and, up until now, Amazon has been the more affordable option.

In addition, the devices offer tangible advantages compared to other tablets, mostly in terms of user experience and assurances that Microsoft won't try and sue either Amazon or B&N over alleged intellectual property infringement, as the corporations wisely inked a licensing deal.

It is worth noting that both Amazon and B&N are under a considerable amount of financial pressure from the technology industry to evolve digital media. Indeed, most of the other stores like Barnes and Noble have already failed, and Amazon is clearly dealing with upstart eBay which is currently outperforming them financially. In fact, the latest Amazon and B&N financial reports appeared to have disappointed investors and analysts alike. In many ways, this fight for the future is one of survival - as it is doubtful both corporations will exit this decade as a viable entity.

Let’s talk about the dynamics of his fight.

Amazon SWOT

I’m going to formulate this as a basic SWAT (Strengths, Weaknesses, Opportunities, Threat) report, simply because it allows for the easy organization of coherent arguments in a similar fashion for both companies.

Strengths: Amazon is currently the strongest on-line retailer in the US market, which gives them a breadth of resources currently unmatched by any other vendor. It also provides the Seattle-based company with a product depth that is unrivaled, as they boast strong properties in books, movies, music, and general retail. Plus, Amazon has a number of on-line services which are likely poised to expand. Their Kindle line has been quite successful to date and, and until recently, the lower priced option.

Weaknesses: However, the above-mentioned advantages can make Amazon appear somewhat unfocused, yet the greatest experience is buying from them directly. Against eBay, which represents a newer model, they may be overmatched because eBay is optimized for third-party sellers which, in aggregate, exceeds Amazon’s resources and breadth. Remember, being a jack of all trades often makes it hard to excel in any one (Netflix is better in streaming movies, for example).

Opportunities: The biggest opportunity for Amazon is to become the nation’s default store. Meaning, Amazon could potentially aggregate the power of everything from a grocery store to a white goods supplier like Best Buy - neatly cornering US retail in the process. And the future Kindle? Well, it could be Amazon's dedicated store front in every home.

Threats: eBay is better structured right now to scale and they are moving into general retail slowly, while Barnes and Noble remains more tightly focused. As such, Amazon could face a serious problem if these two rivals ever partnered, because the result would likely exceed Amazon’s resources significantly.

Barnes and Nobel SWOT

Strengths: B&N is the last remaining large scale book supplier in the nation. The corporation also provides physical locations for people to collect and enjoy media together - and seems to understand the power of advocacy. The Nook Tablet is a stronger technical offering than the Kindle with better performance, and features an optimized hardware industrial design. B&N also appears to recognize it is in a fight for its future, while gearing its marketing campaign accordingly.

Weaknesses: B&N lacks Amazon's breadth in terms of product, which limits how much the company can subsidize its device. Amazon is likely able to accept more loss on each sale than Barnes and Noble, and in a price war, this could put Barnes and Noble at a distinct disadvantage. Book stores are perceived as being obsolete and this perception, unless reversed, is likely a self-fulfilling prophecy.

Opportunities: Amazon’s greatest threat is likely eBay, as Barnes and Noble can't really be considered a natural competitor. This could allow Barnes and Noble’s Nook to become a dedicated front end to eBay’s services in exchange for a small piece of the action. The resulting revenue stream could potentially compensate for the financial differences between the two companies. Plus, real time bidding, an eBay staple, doesn’t exist in Amazon or on the Kindle. Of course, B&N could also partner with other Amazon competitors like Best Buy and, in aggregate, collect resources that could far exceed Amazon’s.

Threats: Barnes and Noble is still too tied to physical books and massive drop in physical book sales would turn their physical stores into financial anchors which could sink the company. B&N needs to find a way to turn their stores back into assets, otherwise they are unlikely to survive intact a high speed switch to digital media.

Wrapping Up: Advantage Amazon But…

In a price war, Amazon currently has an advantage, as its breadth and execution of services allows the company to more deeply discount its device (profitably) compared with B&N. However, Barnes and Noble can successfully partner more widely than Amazon - simply because they compete with far fewer potential partners.

In addition, either eBay and Best Buy could give Barnes and Noble the scale they need to beat Amazon, at least on paper. Obviously, coordination between separate companies can be problematic and either Best Buy (who has its own branded products) or eBay could ultimately develop their own tablets and completely bypass Barnes and Noble.